First-quarter economic growth spurt seen short-lived

OTTAWA (Reuters) - Canada's economy gathered speed in the first quarter, expanding at its fastest pace in a year, as businesses ramped up investment and rebuilt inventories, though economists warned the growth spurt would not last long.

The data, released by Statistics Canada on Monday, nudged the Canadian dollar lower. But it changes little for the Bank of Canada, which is widely expected to hold its benchmark interest rate at 1.0 percent on Tuesday and keep rates steady until the third quarter as growth slows.

"Heading into this, they were looking for growth of a little bit better than 4 percent in Q1, and 2 percent in Q2, and it looks like on both fronts things will be softer," said Doug Porter, deputy chief economist at BMO Capital Markets.

Led by manufacturing, mining and oil and gas extraction, gross domestic product grew at an annualized rate of 3.9 percent in the quarter.

That was the strongest performance since the first quarter of 2010, when the economy grew 5.6 percent, and followed 3.1 percent fourth-quarter growth. The economy of the United States, Canada's biggest trading partner, grew an annualized 1.8 percent in the first quarter.

In March, the Canadian economy expanded 0.3 percent, as expected, following a 0.1 percent contraction in February.

In a separate report, Statscan said strong oil exports to the United States helped shrink Canada's first-quarter current account deficit to C$8.9 billion, from C$10.3 billion.

Also on Monday, Canada Mortgage and Housing Corp, the federal housing agency, raised its forecast for 2011 housing starts to 179,500 units from 177,600, citing an improving economy and still-low interest rates.
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